US stocks: Some US investors are focusing on infrastructure amid a broader AI sell-off

As Wall Street’s love affair with artificial intelligence heavyweights cools, some investors are turning to infrastructure companies that they expect will benefit from AI investments, a shift that is spawning a slew of new products. After huge gains in recent years, shares of AI technology giants such as Alphabet and Amazon have fallen sharply as investors worry that the returns on their massive investments in developing smarter AI systems will not justify such high valuations. To capitalize on that spending spree, investors are focusing on the companies getting the checks: chip makers, data center builders and utilities that are the physical foundation behind the AI ​​revolution, asset managers say.

Many such stocks, including Caterpillar, optical communications provider Lumentum and data storage company Western Digital, have posted double-digit gains this year, while the S&P 500 has returned 0.52% and the Roundhill Magnificent 7 ETF, which tracks the performance of so-called AI hyperscalers, has lost 7.3%. NEW AI INFRASTRUCTURE PRODUCTS

The achievement is spurring exchange-traded fund providers such as BlackRock, VistaShares and Impax Asset Management to adapt their offerings and launch new products, with some betting on a diverse – and increasingly niche – range of AI infrastructure projects.

“Our goal is that every time someone like Meta or Amazon invests in a data center, the cash registers will ring through our portfolio,” said Adam Patti, CEO of VistaShares, which launched its Artificial Intelligence Supercycle ETF in December 2024. In 2025 it increased by 58.4% and this year it has increased by 16.87%.

While the ETF includes AI heavyweight Nvidia, the semiconductor giant’s weighting is less than half that of South Korea’s SK Hynix, whose chips are used in data centers. The ETF’s other top holdings include chipmakers such as Micron and ⁠Intel. “If Meta says it’s going to spend $100 billion, it’s going to these companies,” Patti says.

Similarly, BlackRock’s iShares AI Innovation and Tech Active ETF has now invested 74% of its $8.8 billion in assets in AI infrastructure projects ranging from chipmakers training AI models to energy companies, up from 59% a year ago. That’s “where the revenues are now,” said Jay Jacobs, head of equity ETFs at BlackRock in the US.

Healthy returns from positions such as Fabrinet and Monolithic Power Systems have boosted the fund’s return to 3.2% this year. According to data from VettaFi, the BlackRock fund has attracted $7.9 billion in new capital over the past twelve months.

Two infrastructure ETFs have launched this month alone. Impax Asset Management has converted one of its mutual funds into the Impax Global Infrastructure ETF, while alternatives manager Harrison Street Asset Management launched an AI-related ETF focused on electrification.

“Securing reliable energy sources is one of the biggest barriers to moving forward with all the AI ​​data centers needed,” said Robert Becker, chief investment strategist at Harrison Street.

Ed Farrington, president of Impax North America, said infrastructure is a way to diversify overall stock portfolios, as well as what has been a highly concentrated trade for years.

“STEALTH” AI PLAYS

Sure, the Magnificent Seven “hyperscalers” have consistently delivered high revenues, but investors say this is mainly due to their core businesses, which fund capital expenditures in AI. This year alone, these expenditures will amount to approximately $630 billion.

The search for underpriced infrastructure companies that will benefit is leading some investors to niche corners of the market.

Ari Sass, president and portfolio manager of MD Sass Investor Services, says companies he once considered “stealth” AI plays are coming into the spotlight, such as those that help provide the massive amount of energy needed to power semiconductor factories and data centers.

For example, Quanta Services, which provides construction and maintenance services for electric utilities, is up 24.17% so far this year.

Launched in October, the Tortoise AI Infrastructure ETF invests in companies like century-old Wisconsin-based Modine Manufacturing, which started out making radiators for farm equipment and has since branched out into providing cooling systems for data centers. Shares are up 19.25% so far this year.

As more investors jump into the AI ​​infrastructure business, some are sounding warnings. They point to the fiber-optic network companies that went bankrupt in the 1990s after overinvesting to support Internet companies as a cautionary tale.

“It appears that AI buildout spending is coming from financially stronger companies, but at the same time, valuations for anything with AI exposure are getting a bit rich,” said Michael Reynolds, vice president of investment strategy at Glenmede. “Everyone needs to exercise some caution.”